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How Is Darden Restaurants Inc. Serving Up Profits So Consistently?

By Motley Fool Staff - Apr 5, 2017 at 4:04PM

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The owners of popular chains, including Olive Garden and Capital Grille, beat on earnings.

In this segment from Motley Fool Money, Motley Fool analyst Jason Moser breaks down some of the good news coming from Darden Restaurants (DRI -0.66%). While much of the restaurant industry goes hungry for customers, Darden is putting up envious results and pursuing further growth with the $780 million proposed acquisition of Cheddar's Scratch Kitchen.

A full transcript follows the video.

This video was recorded on March 31, 2017.

Chris Hill: Shares of Darden Restaurants hitting a new high this week after third quarter profits came in higher than expected. Darden is the parent company of Olive Garden, LongHorn Steakhouse, The Capital Grille, and now, Jason, Cheddar's Scratch Kitchen. Never been there, but I sure do like the name, and that's the $800 million acquisition that Darden pulled off.

Jason Moser: Rolls right off the tongue. I'm not sure what I'm more impressed with from this reporting. Olive Garden's success in the to-go segment of the business continues to astound. Growth of 17% for the quarter. Or, the fact that it was Olive Garden's 10th consecutive quarter of same-store sales growth. Clearly, that's a concept that's resonating with a lot of people. I have a feeling our man behind the glass there probably went at least once this past quarter.

I think they did a good thing in spinning off a lot of those restaurants with the real estate where they owned, spinning that property off to the Four Corners Property Trust, I think that allowed them to monetize that real estate while focusing more on operational excellence. And I think the Cheddar's acquisition seems like a pretty good one. When you look at the unit economics, they're bringing in about $4.5 million annually per restaurant. Average check of around $13.50, so it's affordable. Bringing in about $617 million to the top line immediately, with a restaurant base that should be able to grow. They have somewhere in the neighborhood of 165 restaurants today. There are a lot of reasons I think Darden could continue to perform well. They obviously have a big portfolio of different restaurants, which certainly plays into a strength here in this restaurant segment. So, all in all, they continue to perform very well.

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